All We Need Is a Reasonable Roadmap -  Part I

Nineteenth-century writer and futurist H.G. Wells would have had little patience today for anyone complaining that we couldn’t have foreseen the Covid-19 pandemic circling the globe. A celebrated visionary, Wells foresaw many of the defining inventions of the 20th century, including the airplane, space travel, and the atomic bomb.

In his science-fiction novels, he coined the term “time machine” and imagined the earth being invaded by aliens. Of special note today, in The War of the Worlds (1895), where humans were unable to defeat the superior, blood-thirsty Martians, he imagined them felled nonetheless by microbes “against which their systems were unprepared . . . slain, after all man’s devices had failed, by the humblest things that God, in his wisdom, has put upon this earth.”

In a 1932 BBC radio address entitled “Wanted - Professors of Foresight!,” Wells exhorted listeners to spend as much time studying the future as they did the past. In one of his bestselling books, The Outline of History (1919), he described the evolution of humans but refused to stop the narrative at the present day, continuing into “the future history of the ‘United States of the World.” His requested epitaph was, "I told you so. You damned fools."

In the century since Wells was writing his bestsellers, it seems like we should have gotten a lot better at anticipating what’s coming down the pike. We’ve learned more about the universe; we have computers and data; we have more experience with the effects of new technologies, political developments, and natural disasters.

Despite these advantages, we’re not much better at anticipating the future since Wells’ day. In his BBC radio address, he lamented how easy it should have been to foresee the clogged roads and decline of railroads that the automobile’s arrival would bring. He could have made the same complaint today regarding the effects of tens of thousands of car-sharing drivers that descended on major cities in recent years, making downtown streets impenetrable and threatening both public transportation and the taxi industry.

Wells proposed a remedy to help us better prepare for the future:

 

There is not a single Professor of Foresight in the world. But why shouldn’t there be? All these new things, these new inventions and new powers, come crowding along; every one is fraught with consequences, and yet it is only after something has hit us hard that we set about dealing with it.

 

In the 1960’s, multinational conglomerates seemed to take Wells’ advice by establishing Strategic Planning Departments whose jobs were to generate analyses, models, and forecasts that could provide at least a glimpse of what was around the corner. 

By the late 1980’s, when I was a young management consultant, most of the strategic-planning departments had been disbanded. Their leather-bound predictions had proved more useful as paper weights than crystal balls, and after too many failed forecasts, CEO’s had given up on the nerds and gone back to spitballing their way forward.

But it was nice to see in a Wall Street Journal article last week, Companies’ Financial Planning Comes Up Short in the Coronavirus Era, that strategic planning itself didn’t die. It may not have helped predict the Covid-19 pandemic, but the article’s details suggested that companies were nevertheless reaping important benefits from their planning efforts:

 

Norfolk Southern last year started relying on stress-test scenarios to test its liquidity and gauge if it was positioned to deal with another crisis such as the 2008 downturn, Mr. George said. The company’s finance team imagined scenarios using varying multiples of revenue and then simulated the impact of that revenue on cash flow. Those exercises are helping the company evaluate possible outcomes, he said.

 

Scenario planning is the opposite of trying to predict the future. Rather than try to define which path the future will take, the goal is to construct a range of possible paths -- a collection of alternative futures -- to help think through strategic choices. It’s more about developing a reasonable roadmap than fixating on a precise target.

Quantitative inputs such as revenue projections, inflation rates, and economic forecasts are still important. But the driving force behind scenario planning is the same one H.G. Wells used to write his works of fiction and identify many of the defining inventions of the twentieth century: imagination.

We routinely use scenario planning in our personal lives just to get through the day: If we get off work on time, we will stop by the grocery store on the way home; if not, we’ll order takeout. If it’s sunny tomorrow, we’ll go for a hike and a picnic; if it rains, we’ll bake cookies and watch Netflix.

When it comes to looking further out, though, most of us prefer to narrow the number of future scenarios that we’re willing to consider. Particularly with the low-probability, high-impact events such as premature death and disability, we prefer to avert our eyes.

Even with something like a vacation, we prefer to imagine only the happy scenarios. My teenage son is planning a solo biking/camping trip shortly through Point Reyes National Seashore and looking forward to the possibility of spotting a few bird rarities and breathing the air in places with no other people in sight. 

It was annoying to have me ask questions about first-aid plans and emergency cash. In fact, the more questions I asked about his preparation for the not-so-great scenarios, the more he began to suspect that I was simply throwing up obstacles to dissuade him from the trip. “At some point, planning just becomes paranoia,” he said, riding off for the day.

I see his point. How much might not have been accomplished if we had succumbed to anxiety and paralysis engendered by a realistic assessment of what the future might bring? How many boats might not have sailed, discoveries made, or businesses begun without a single-minded focus on the vision for the future we want to create?

Be stubborn on vision, flexible on details. - Jeff Bezos

We see this concern as well in our work with clients. People often feel that if they focus on potential downsides, they’re less likely to enjoy the desired upsides. Our view is different: with even just a little forethought about the potential obstacles for our goals and how we might adapt, we greatly enhance our ability to achieve them.

We’ve found scenario planning to be particularly helpful in thinking through the details of personal financial plans and look forward to sharing some of our approaches in our next article.

Click here for Part II.